Cotton costs now have subsided, but Hanes (ticker: HBI) has maintained its pricing power by moving well beyond tighty-whities to add features for which its customers are willing to pay a premium. These include tagless underpants with a cotton/polyester mix ("Comfortblend") that doesn't ride up, moisture-wicking fabrics for gym-goers, and simplified sizing and flexible fits for bras.

The up-market move has given some shoppers pause. Overall revenues last quarter slipped 3% versus a year earlier, Hanes said Tuesday. But operating profit exploded to $85 million from less than $11 million and has set into motion a virtuous cycle for shareholders. Free cash flow is surging. The company is paying down debt, saving on interest payments and further bolstering earnings. It recently introduced a dividend. Shares have surged more than 35% this year, versus an 11% rise for the Standard & Poor's 500 index.

Hanes, with a market value of $4.8 billion, trades now at 14 times this year's earnings forecast, on par with the broad market, but it could move 20% higher in a year as the company comes to more closely resemble the consumer-staples royalty investors are piling into for safety and income: companies like General Mills at 18 times earnings and Procter & Gamble at 19. The new dividend should consume only some 20% of earnings over the next year. The typical dividend-payer in the S&P 500 shells out 33%, suggesting Hanes has plenty of room for payment increases. The company's free cash yield, the wellspring from which dividends come, is over 8%, based on the midpoint of management's guidance for this year's free cash flow. That dwarfs its 1.6% dividend yield.

Wall Street expects earnings per share for Hanes to reach $3.45 this year, a 32% increase. Next year's forecast calls for a 16% rise. With that growth, if the stock's price-to-earnings ratio nudges closer to 15 over the next year, stockholders should secure a 20% gain.

Investors should also keep watch for the stock market's next Hanes-type opportunities: companies that are turning rising profit margins and plentiful free cash and bigger perks for stockholders.
Barnes Groupb 2.0445609436435124%Barnes Group Inc.U.S.: NYSEUSD38.93
0.782.0445609436435124%
/Date(1438376612988-0500)/
Volume (Delayed 15m)
:
332599AFTER HOURSUSD38.93
%
Volume (Delayed 15m)
:
58101
P/E Ratio
16.79537512403469Market Cap
2129237446.19568
Dividend Yield
1.2329822758797842% Rev. per Employee
276432More quote details and news »binYour ValueYour ChangeShort position
(B) is an aerospace and industrial manufacturer whose customers include
BoeingBA 0.8111320886651283%Boeing Co.U.S.: NYSEUSD144.17
1.160.8111320886651283%
/Date(1438376769557-0500)/
Volume (Delayed 15m)
:
2821153AFTER HOURSUSD144.17
%
Volume (Delayed 15m)
:
342343
P/E Ratio
19.641689373297Market Cap
97962792201.8524
Dividend Yield
2.5247971145175834% Rev. per Employee
573680More quote details and news »BAinYour ValueYour ChangeShort position
(BA) and Airbus. Its shares have lagged well behind the broad market over the past year, and a quarterly earnings miss announced Friday didn't help, but there are signs of improvement. This past week, Barnes completed the sale of its supplies distribution business in North America, which had been a drag on profit margins and growth. It will use the proceeds to reduce debt, buy back stock, and invest in thriving business units. In its most recent quarter, adjusted operating margin expanded by 2.5 percentage points to 13.5%. Operating cash flow jumped to $17.7 million from $6.3 million. Shares go for 14 times earnings. KeyBanc upgraded the stock to Buy last month with a one-year price target of $33, or 20% above its recent price.

AFTER YEARS OF PRUNING underperforming stores and tweaking its merchandise,
Gapgps 1.1927877947295422%Gap Inc.U.S.: NYSEUSD36.48
0.431.1927877947295422%
/Date(1438376582970-0500)/
Volume (Delayed 15m)
:
7672932AFTER HOURSUSD36.48
%
Volume (Delayed 15m)
:
84326
P/E Ratio
12.755244755244755Market Cap
15225110609.7313
Dividend Yield
2.5219298245614037% Rev. per Employee
115731More quote details and news »gpsinYour ValueYour ChangeShort position
(GPS) is once again winning over investors. Shares are up about 20% this year. They remain a good deal at 14 times earnings. Gap's market share in North America rose last year but stands at just 3.9%, leaving plenty of room for gains, according to Jefferies, which calls the stock a top pick. Overseas, market share is a small fraction of 1%; the company plans to franchise Old Navy stores in certain markets beginning next year. Last quarter, Gap reported a 66% jump in earnings per share on 10% higher sales. Jefferies estimates that higher sales of full-price merchandise will gradually raise Gap's operating margins to 13.7% by 2015, from 9.9% last year. That should provide plenty of cash for Gap to continue buying back its stock.

Molson Coors BrewingTAP 0.35816618911174786%Molson Coors Brewing Co. Cl AU.S.: NYSEUSD70.05
0.250.35816618911174786%
/Date(1438353749348-0500)/
Volume (Delayed 15m)
:
100
P/E Ratio
30.456521739130434Market Cap
13203679232.3889
Dividend Yield
2.3411848679514633% Rev. per Employee
442890More quote details and news »TAPinYour ValueYour ChangeShort position
(TAP) sells mass-market beer at a time when pricier craft brews are attracting higher-income drinkers and the unemployed are cutting back altogether. Yet the stock is up 20% this year. One reason is that an agreement with Miller to share brewing resources is saving more than $750 million a year, of which Molson Coors gets 42%, according to Morningstar. Management expects free cash flow to total $700 million this year, give or take. That's 7.5% of the company's recent market value, making its 2.5% dividend yield seem not only safe but too slim. Goldman Sachs upgraded the stock to a Buy rating earlier this month, noting that improving employment and new product introductions could drive better than expected earnings, and calling Molson Coors one of the most underloved consumer-staples stocks. Shares go for less than 13 times earnings.

Good News Afoot

These companies are turning rising margins into free cash and dividends.